UK Shopper Loyalty Study

Introduction

The supermarket sector is never far away from the front of the business pages. It is a dynamic and fluid market where a narrative of winners and losers is fascinating to observe: the recent success of Aldi and Lidl juxtaposed against the well-documented problems experienced by Tesco and Asda has made for a compelling scenario.

The food retail sector is one sector of the economy where the public are fully engaged. Compared, say, to hydrocarbons or business services, which are both sizeable parts of the economy, the public interacts with grocery retailers on a frequent basis and are very vocal about their likes and dislikes relating to the various protagonists in the market.

Obviously, we are in a stage of market evolution where the traditional understanding of shopper loyalty has been compromised. Shoppers are not afraid to spread their grocery spend across a variety of retailers and channels, shunning what used to be the ‘big shop’ at a major supermarket and instead giving increasing proportions of their grocery spend to smaller shopping trips and smaller grocery retailers such as Aldi, Lidl, Waitrose or even Amazon.

With this backdrop in mind, it appears to be a timely moment to assess, through shopper research, what loyalty means in the current environment and what retailers can do to both generate and protect loyalty among their shoppers.

Store selection drivers

In a market where commentary frequently dwells on ‘price wars’ and where the success of the discounters is often attributed to them being cheap, it is interesting to note that low prices are not a key driver when it comes to shoppers choosing which stores to give their business to. Instead, we see that price comes fairly low down the list of store selection drivers.

Location & habit

‘Location, location, location’ has been a mantra throughout the development of retailing and this is borne out by the fact that the key driver of store selection in the UK is that the store is either in close proximity to the shopper or easy to get to. This is the main driver for around half of all UK shoppers and goes someway to explaining the ‘space race’ that transfixed many UK grocery retailers throughout the 1990s up until around five years ago: by opening more and more stores, it was relatively easy for retailers to win market share.

Simply put, it is generally difficult to convince a shopper to travel past one retailer to get to another. For this to happen, the nearest store needs to be sufficiently bad, or the alternative store needs to be sufficiently compelling (usually in terms of quality, experience or price), for the shopper to sacrifice their time and forsake geographic convenience.

Habit is another fundamental driver of store selection. Indeed, ‘I always shop there’ is the third main reason that shoppers cite for their choice of retailer. This habit – or put another way, inertia – is often very hard to destabilise. We’ll take a look at switching, and what causes it, later, but it can often only be prompted by an alternative store opening nearby or by a more compelling retailer entering the wider repertoire.

This inertia is not just driven by physical location, but also by familiarity. The two topics that overwhelm the inboxes of supermarket CEOs in the UK are borne of the frustration arising from the delisting of certain items or the reorganisation of a store’s layout. It is no surprise, therefore, that ‘familiar layout’ is one of the top ten drivers of store choice.

Is price king?

The trade press and business pages in the UK are awash with tales of ‘price wars’, with Asda in particular cited as having its finger hovering over the ‘nuclear’ price button as it seeks to regain shoppers and market share relinquished to the hard discounters and other Big Four rivals. Virtually all competitors in the market have sharpened pricing to some extent, many of them shifting away from complex or unwieldy promotional mechanics to simpler and lower base prices, particularly in key categories like produce and proteins.

Price is certainly a massively important factor for shoppers and it is notable how much they have gravitated towards some low-priced retailers (i.e. Aldi and Lidl) in recent years. That said, low everyday prices and good value offers rank after proximity, selection and habit as a key driver and it is notable that special offers still figure so prominently. While some offers might be complex or confusing, it appears that some shoppers still value the appeal of a reduction or multi-buy as part of the overall shopping experience.

Market coverage often implicitly assumes that Aldi and Lidl win because they are cheap. It’s easy to overlook the fact that they also thrive because they are easy places to shop too. With limited assortments, simple pricing and a small footprint, they are favourably compared by shoppers to large supermarkets that can often be much bigger, harder to navigate, stores hosting larger ranges replete with duplication and bewildering promotional mechanics. It’s not for nothing that easy shopping experience is another top ten store choice driver.

What about range and service?

With the current winners in UK grocery boasting limited assortments and a lean offering in terms of service, are we seeing UK shoppers deprioritising these attributes? It would appear not: a ‘good selection of food products’ is the second most important factor for shoppers after geographic convenience. Clearly, shoppers’ interpretation of what a ‘good range’ constitutes might vary widely, but it is noteworthy that the current success of Aldi and Lidl has required both players to bring in swathes of new items and introduce new features like instore bakeries.

This could clearly be a key strategic advantage for the supermarkets over discounters in the future; the breadth and depth of their ranges, if streamlined and stripped of duplication in less important categories, and bolstered in the categories that really matter to shoppers (i.e. fresh produce, which is the tenth most important store choice driver) could provide a compelling reason to reselect a regular supermarket over a discounter.

Other service aspects are also important, chief among them availability. It is worth remarking that periods of underperformance from some of the world’s largest retailers – Walmart, Tesco and Carrefour spring to mind – have been closely linked to availability problems, with either systems or manpower issues leading to gaps on the shelves. Shoppers are quick to notice availability issues, and out-of-stocks are significant bugbear for them. Consequently, ‘wellstocked shelves’ are a key determinant of where these shoppers choose to shop.

Drivers vary by channel

While the general observations above depict the main drivers of how shoppers select their store of choice, the hierarchy can vary significantly by channel. For the grocery market as a whole, the key drivers are convenience (‘easy to get to’), proximity (‘close to me’), range (‘a good selection of food products’), habit, low everyday prices and promotions.

The only real exceptions to this rule are hypermarkets, where habit and ample parking become important factors; discounters, where low prices are the understandable main driver; and cstores, where opening hours, staff and layout increase in importance. Overall, though, it is clear that location is paramount when shoppers are deciding which store to visit.

Channels & missions

Decoupling store size and mission

One of the great myths that pervades grocery retailing is the assumption that certain channels are synonymous with certain grocery shopper missions: e.g. immediate consumption missions only take place in c-stores; or big shopping trips take pace only in hypermarkets or supermarkets. Obviously, there is some credence to this assumptions as certain formats are indeed better suited to certain missions, but a more detailed look at shopper behaviour leads to some more nuanced observations.

Over obsessing about the trolley shop

Many major supermarkets traditionally targeted the ‘big weekly trolley shop’ as the mission that their larger to stores were there to service. In more recent years, however, many major retailers have been acknowledging that larger stores are there to service a much broader array of missions that the main shop.

As a consequence, all of the major supermarket operators have been retooling their stores to better cater for missions such as food-for-now, food-for-later and other convenience trips. This has seen the creation of food-to-go areas at the front of larger stores, the improvement of instore cafes and restaurants and the adjustment of ranges to better cater for the top-up shopper. Tesco has noted that around 70% of top-up shopping trips (what it would describe as ‘£20 in 20 minutes’) within its total UK business actually take place in its larger stores as opposed to its convenience stores or smaller, urban Metro outlets.

This observation is borne out by our shopper data, which indicates that less than 50% of trips to hypermarkets are ‘main shops’, with this proportion falling below 40% in supermarkets. In both hypermarkets and supermarkets, nearly 20% of stopping trips are accounted for by immediate consumption and convenience (an urgent shopping trip for a few items) missions. Unsurprisingly, c-stores under index with regards to main shopping trips, with discounters similarly generating most trips through top-up and convenience missions. It is noteworthy that supermarkets, discounters and c-stores all rely on a similar extent to top-up shoppers – with each channel seeing around half of its shopping trips being accounted for by this mission.

What drives store choice for different missions?

We described earlier how different drivers vary in importance for different formats, and the same is equally true for shopper missions. Looking across all grocery shopping trips regardless of mission, the key drivers for shoppers in terms of store selection are convenience (easy to get to), proximity and food range. Convenience and proximity generally rank highly across all missions, although their place in the decision hierarchy can often vary.

For a main shop, these two factors are deprioritised, with the assortment of products and familiarity/inertia (‘I always shop there’) coming in as the most important decision drivers. Promotions, produce ranges and low prices are also key factors when it comes to where shoppers choose to complete their main shopping trips, with other drivers including brands, private label, availability and loyalty rewards. For a top-up trip, convenience and proximity trump food range as key priorities, while drives that also exert an impact are an easy shopping experience, familiar layout and loyalty rewards.

For the smaller basket missions – convenience and immediate consumption – proximity and convenience are the two unsurprising main drivers. Convenience shoppers then prioritise friendly staff and convenient opening hours, with low prices also cited as a key driver. This is perhaps surprising, as the c-store chains operate by the likes of Tesco and Sainsbury’s charge higher prices compared to bigger supermarkets and online, while c-store specialist such as the Co-op are typically more expensive than their larger competitors. These two missions are the only two which see ‘quick and easy checkout’ mentioned as a significant attraction, to be expected given that the speed of shopping trip is key in the convenience and food-for-now missions.

Decoding convenience

There are differing schools of thought regarding convenience. Some commentators have postulated that the convenience sector has reached some sort of saturation point in the UK, with these smaller stores not immune from the crowded and competitive market conditions that have blighted larger stores in the British market.

Others suggest that the sector will continue to remain buoyant, supported by ongoing changes in consumer / shopper behaviour. The logic of this argument is that shoppers are choosing to complete more frequent shopping trip with smaller average basket sizes rather than consolidating their buying into one main shopping trip each week, fortnight or month. Data from analysts such as Kantar Worldpanel, however, does not support this hypothesis.

Kantar Worlpanel has found that the number of shopping trips, average basket, number of items per basket and number of fascias visited per month have all actually remained fairly static over the last five or so years. What has changed has been where shoppers have been completing their ‘main’ shopping trips (these are being switched out of the big supermarkets and into discount stores and online) and a shift in convenience and immediate consumption trips out of the independent trade and into the c-stores operated by the major multiples.

This trend is likely to continue: although Asda has hit the pause button on its c-store aspirations and Morrisons disposed of its core c-store business (although it has started a partnership for cstores at petrol stations), most other multiples are pressing ahead with their expansion plans in this sphere. Tesco continues to open many Tesco Express and One Stop stores each year (the latter being boosted by franchising); Sainsbury’s powers ahead with its high growth Local chain; and the Co-op has expressed a long-term desire to achieve market leadership in convenience through new store space and the refurbishment of existing stores. Elsewhere, both M&S and Waitrose at the premium end of the market are looking to bolster their c-store presence through Simply Food and Little Waitrose respectively.

Independents, who still account of a large proportion of the convenience sector, are increasingly finding the going tough, with strong competitive pressures combining with hesitant consumer sentiment and regulatory changes (tobacco) to create tough trading conditions. It is little wonder, therefore, that symbol and voluntary groups such as Premier, Londis, SPAR, Costcutter, Nisa and Simply Fresh are experiencing strong demand from independent retailers wishing to seek refuge as part of a larger group.

In terms of offer, many c-stores – both indie and multiple – are raising their game in a number of key areas to try and improve their chances of success. Key areas of focus include: food-to-go (both hot and cold); news; coffee; meal solutions; fresh foods and financial services.

Discounters spreading their wings

Historically, the discounters Aldi and Lidl were perceived very much as top-up destinations, where shoppers would go to replenish between main shops or pick up a selection of lowinvolvement ambient categories while purchasing fresh categories and major brands elsewhere. The discounters were finding the UK market hard going: they suffered from perception problems, the range left much to be desired, that stores’ look and feel was problematic and the undoubtedly low prices were not seen as an ample enough trade off by many middle class shoppers to mitigate the retailers’ shortcomings.

Indeed, both operators found the British market much more gruelling than anticipated: Aldi was even on the brink of withdrawing. Then a few things happened to shift the playing field in the discounters’ favour. Firstly, the 2008 financial crisis unleashed economic uncertainty among UK shoppers and frugality was very much top of mind, a sentiment that the German-owned businesses were very well positioned to cater for.

Secondly, the main incumbents in the supermarket industry fell victim to some self-inflicted problems. At a time when saving money (and saving time) was very high up the shopper agenda, supermarkets were awash with complex promotional mechanics, reams of supplierfunded promotional materials and were seeing their assortments become ever more complex and unwieldy. Some, like Tesco, as they sought to protect the bottom line, cut payroll, leading to poor availability, disappointing standards and sub-optimal customer service.

Thirdly, Aldi and Lidl set about correcting those aforementioned shortcomings, removing many of the objections that more affluent shoppers had against shopping in the discount channel. Key brands like Kellogg and Coca Cola received permanent listings; categories like bakery, meat, chilled, fish, produce and health & beauty were expanded and enhanced; private label ranges were tiered and augmented; the look and feel of the stores was improved; and recruitment was stepped up to improve customer service levels. All of these measures have meant that the discounters became credible destinations for a main shop; at the same time, the discounters also enhanced their range and merchandising to appeal for immediate consumption trips too.

And where does online sit?

Online grocery, despite accounting for only 5% of the market in the UK, has been a key driver of sales, with major supermarkets and online specialists both contributing to the relatively speedy growth of the channel. The segment is well-established in the British market, with all major players (except M&S, the Co-op and the discounters) offering their shoppers the opportunity to shop online and then opt for home delivery and / or click & collect.

British shoppers have proven relatively receptive to the notion of grocery e-commerce, more so than virtually all other markets around the world. High internet and smartphone usage, coupled with congestion and declining car ownership in major cities, makes it an attractive proposition for time-pressed British shoppers. UK retailers, whether major supermarkets like Tesco or Asda, or specialist operators such as Ocado, have created a compelling proposition, with wide ranges, affordable delivery or click & collect options and impressive user-friendly websites and apps for shoppers to order their groceries. Around half of the shoppers that we surveyed had used online grocery services in the past, with three quarters of them opting for home delivery. Around one in ten shoppers use click & collect in isolation, with around 15% of shoppers combining both home delivery and click & collect to complete their orders.

Interestingly, the main driver behind the adoption of e-commerce is that home delivery negates the need to make a trip to the store. Other attractions include the ability to shop at any time of the day and the fact that (or perception that) it takes less time to shop online than instore. A significant number of shoppers point towards other attributes that encourage them out of stores and onto the internet, notably that it is easier to budget or plan online, that there is a good range and availability of product, and that it is easier to stick to a shopping list and avoid temptation.

Store access

One of the dominant issues that has confronted the UK supermarket industry in the last few years has been the narrative around ‘saturation’. There are, the story goes, too many food stores in the UK, and that a number of these are too big, in the wrong place and no longer fit for the future. Furthermore, cannibalisation by the major grocers (in terms of new big box space, online and convenience stores) is worsening the economics of larger supermarkets, with incremental competitive pressure being generated from online specialists, the limited assortment grocery discounters and high street discounters too.

Have we reached saturation?

There can be no doubt that many of us have an almost bewildering choice of places from which to purchase food and drink. When one factors in the big mainstream supermarket and convenience retailers, symbol groups and independents, the discounters and online grocery retailers, it is clear that the level of retail grocery choice in the UK is very ample! However, there are many alternative sellers of groceries out there, including businesses that are nominally wholesalers and operators for whom food and drink is not (or was not) the focus of their proposition. We would include here warehouse clubs and cash & carries such as Costco and Booker, discounter retailers such as B&M, Poundland, Home Bargains and Wilko as well as online companies such as Amazon.

When we asked shoppers to evaluate the availability of grocery destinations near to them, including the secondary wholesalers and non-specialist retailers of groceries, the response was that – on average – shoppers have a choice between 11 stores, of which 10 are easily reachable and five are very easily reachable. This reflects the fact that many shoppers have an extensive variety of different retailers, or different formats of these retailers, to choose from.

This array of choice is something that shoppers are happy to explore, leading to an erosion of loyalty as shoppers have developed a ‘portfolio’ approach to grocery shopping, having around five different stores or banners that they generally split their shopping between. When questioned on their last shopping trip, 60% of our respondents stated that they had completed this trip in their most preferred store, with nearly third admitting that it was one of a set of stores that they were happy to use.

This wealth of convenient store choice has created a sensation of ambivalence from a sizeable minority of UK shoppers: a worryingly high 39% of shoppers agreed that “it would not matter to me if my usual grocery store closed; I would just shop somewhere else.”

When is it worth crossing the road?

When is it worth driving or walking past one store to get to another? When are the attractions of a store that is inconveniently located enough to overcome the lure of convenience and proximity?

The answer is ‘not very often’. Only 3% of all shopping trips involve getting to a store that is less conveniently situated than others. This 3% average holds true for Tesco, Morrisons, Sainsbury’s and Waitrose; although only 2% of trips to Asda involve putting extra effort into the journey. The discounters fare slightly better, with 4% of Lidl shoppers going out of their way to shop there and 5% of Aldi shoppers forsaking convenience in exchange for low prices.

The one retailer that seemingly merits a longer journey is M&S, with 14% of trips to the premium retailer involving extra effort. This reflects the excellent quality of the M&S offer as well as the fact that 95% of M&S products are unique to the retailer. The apparent appetite for the M&S grocery offer obviously engenders true loyalty, and also perhaps raises the question over why the business is yet to implement in-house grocery e-commerce to complement its growing network of Simply Food convenience stores in order to better satisfy M&S loyalists who might not necessarily have easy access to its stores.

Switching

We’ve mentioned switching already, with the two most significant switching trends being the drift of the main shop out of the main supermarkets and into discounters or online. This is still a significant problem for the supermarkets, with a steady trickle of shoppers still transferring their main shop to Aldi and Lidl, with the latter in particular performing incredibly strongly in 2016.

We might expect switching into discount to moderate to some extent in the future, as the supermarkets react by investing margin into lower base pricing and shifting to more of an EDLP focus. The fact that some discount stores are ‘overheating’ in terms of full carparks and hefty checkout queues might encourage some shoppers to return to mainstream grocery stores. However, the fact that both Aldi and Lidl have incredibly ambitious store opening plans will mean that they will continue to steal share from the Big Four supermarkets for the foreseeable future: there are still many UK shoppers who wish to shop at Aldi or Lidl but who do not have convenient access to the retailers, potential that is realised each time one of the German chains opens for business in a new catchment area.

Is switching still an issue?

Although banner switching is moderating slightly, it is still a sobering thought that some 16% of shoppers have switched retailers over the course of the previous year. Unsurprisingly, the bulk of switching activity has seen shoppers migrate into discount stores: around a third of UK discount shoppers have switched their main store over the last 12 months, the bulk of these switching out of a mainstream ‘Big Four’ supermarket. Although discount has been the main beneficiary of this rising promiscuity, there has been significant churn across the market – with convenience stores also a significant destination for migrating shoppers.

Why will shoppers switch in the future?

In terms of gauging what might motivate shoppers to jump ship in the future, the results are perhaps unsurprising in general, but do create some interesting food for thought in terms of what matter s to shoppers and what retailers might pursue in terms of retaining their existing shoppers.

Three of the four main reasons that might make the shoppers we interviewed consider leaving one retailer for another are concerned with financial, or transactional, loyalty. These drivers comprise lower base pricing in the form of EDLP, ‘better value’ in general terms and more compelling promotions / special offers. This reiterates a basic premise that pricing is a leading component of a retailer’s broader value proposition. This is heartening in a way: all four of the largest grocers have either transitioned towards lower everyday pricing (Tesco, Morrisons and Sainsbury’s) or are building on their existing EDLP proposition (Asda).

Two watch outs here as well though: a quest for better value-for-money, the second most important factor that might prompt shoppers to defect, involves much more than just price. Value in a broader sense also involves issues like quality and service (or perceptions thereof) – an observation that is illustrated by the fact that Asda, which has been the cheapest supermarket for a great many years, has been steadily losing market share as perceptions of quality, instore experience and range have – rightly or wrongly – lagged those of competitors.

It is notable, perhaps, that the third most important factor that might provoke shoppers to switch retailers is the concept of ‘better rewards for my loyalty’. This would be notable as Asda is one of very few chains (alongside Aldi and Lidl) that does not have a loyalty card. All of the other major retailers operate a loyalty card that rewards shoppers with points, discounts, targeted coupons, exclusive benefits or exclusive promotions. It is worth remembering that loyalty rewards need not equate to a loyalty card mechanism: there are many other ways to reward shopper loyalty, such as through gamification, instant rewards at checkout or collection programmes where certain levels of spending can be translated into free or discounted merchandise.

As previously mentioned, all around the UK, there are thousands of shoppers who would happily switch stores should an alternative become available that is easy to get to and/or convenient to shop in. This validates, to an extent, the ongoing opening of convenience stores by the likes of Sainsbury, Tesco, M&S, the Co-op, and Waitrose as well as the sustained opening of discount stores by Aldi and Lidl. Both discounters have hinted that new stores are incremental – taking shoppers directly from the mainstream supermarkets and, where any cannibalism does exist, this merely acts to lessen the pressure on existing stores that are straining to meet demand.

The final factors that could attract shoppers away from one retailer to another are concerned with the quality and service aspects of value, namely quality in produce, improved ranges and a better checkout experience. The range issue is something of a Goldilocks scenario, where supermarkets must walk the tightrope between too broad (and therefore complex and inefficient from both a retailer and shopper standpoint) and too narrow (the elimination of some SKUs, while not best sellers, can be a deal breaker for shoppers).

All of the main supermarkets were guilty of assortment bloat (possibly encouraged by supplier money rather than by shopper need) and have since enacted range rationalisation programmes to try and correct the unnecessary duplications that grew to blight the shopping experience. It is noteworthy that the discounters’ ranges are ballooning, a slight concern given that a core aspect of their appeal was the relative simplicity and efficiency of the range and the shopping experience.

Checkout service has always been a tricky issue. Shoppers generally hate queues and Tesco’s famous ‘one in front’ pledge from decades ago to minimise queue times has recently been mimicked by Morrisons. That said, manning checkouts is expensive, and also takes personnel away from other tasks such as replenishment. Delivering the optimum checkout experience is therefore something of a balancing act.

The advent of technology such as self-checkout and self-scanning has been welcomed by many shoppers who do not necessarily crave human interaction and perceive these options to be quicker or more efficient. These technologies also deliver cost savings for retailers. In theory, a win-win, but a number of senior UK retailers have suggested that the fact that a customer could complete a major £150 trolley shop without a single interaction with an employee is something of a missed opportunity.

When we assessed what might cause shoppers to switch banners in the future, it soon became clear that, comparing a wide range of store attributes, there is a general four-way split between these attributes and characteristics of a retailer’s positioning:

attributes that are unimportant or irrelevant to the shopper (e.g. coffee shops, fuel discounts, self-checkout)

Many retailers in the UK are firmly encamped in the third category: reenergising their personnel to deliver improved service, revamping fresh departments to create greater authority in key categories like meat and produce, overhauling process to minimise out-of-stocks and sharpening their promotional proposition. This is all well and good, but we would exhort retailers to cast their eyes towards the fourth bullet point to see what shoppers believe could tempt them to switch store allegiance in the future.

Everyday low prices: This might not be as intimidating as it sounds. The operating models of retailers like Aldi, Lidl and Asda mean that they are virtually predestined to offer the lowest prices. That doesn’t mean that other retailers cannot offer everyday low prices. By reducing reliance on high-low promotions and multi-buys (with all of the turbulence and inefficiencies that these entail), supermarkets can invest in lower base prices on staples, ’known value item’ branded lines and key categories like produce. Shoppers crave stability, predictability and simplicity in pricing – the emphasis here should be on the ‘everyday’ rather than the ‘low’.

Proximity to shoppers: The UK’s supermarket and hypermarket retailers are looking to rationalise store portfolios as they realise that they have too many outlets or that some of their stores are in the wrong place or are the wrong size in light of structural shifts in shopper behaviour. Despite these headwinds, shoppers are adamant that they could be tempted into switching retailers if new stores opened close to where they live and/or work. This is obviously good news for the likes of Aldi and Lidl, who continue to dozens of stores every year.

Rewards for shopper loyalty: Throughout our analysis, a reason that shoppers feel emotionally disconnected from their main grocery store is that they feel unrewarded for the loyalty that they show towards this particular retailer. By providing tangible and meaningful rewards for frequent shoppers, retailers have an opportunity to forge more of a closer bond with customers and elevate the relationship from inertia to advocacy.

Loyalty cards: Despite a cooling of attitudes towards loyalty cards in general, there is still an appetite for these schemes and the benefits that they can provide. However, we concur with many respondents that these rewards need to be more immediate, personalised and contextualised. Rather than a one-size-fits-all, vanilla approach to loyal customers, we would encourage retailers to strive for a more tailor-made approach that acknowledges the individuality of a customer and their purchase history.

Non-card loyalty campaigns: Shoppers expressed enthusiasm for other types of loyalty campaigns: those that give shoppers the opportunity to receive free or discounted products or collectible items. By providing shoppers with these tangible ‘thank you’ moments, shoppers believe that this would be an effective way to differentiate and could prompt them to switch allegiance to retailers who provide this method of rewarding loyalty.

The success of the discounters

Why are discounters winning?

The simplistic explanation for why Aldi and Lidl have been growing their popularity with UK shoppers is that they are the cheapest retailers in the market. One secondary explanation is that they are both still opening stores at a rapid tempo, rapidly gaining market share from incumbent supermarkets every time they open a new location.

The third main reason behind their success has been the significant tangible improvement in their offer: adding in more major brands; introducing a more sophisticated private label proposition; roiling out expanded produce sections and instore bakeries; investing more heavily in staffing and checkout solutions; and ploughing ever increasing sums into marketing. Developments such as these mean that, as previously discussed, discounters have become a plausible destination for a main shop, enabling them to capture a growing number of shopping trips that would previously have been destined for the major supermarkets.

Will they keep winning? Recent data from Kantar Worldpanel suggests that the discount retailers are growing at their slowest rate since 2011, with their traditional robust double-digit growth slowing to a more moderate tempo, leading some observers to suggest that like-for-like growth might have decelerated into declines over the last year. That said, Kantar Worldpanel asserts that both Aldi (growing at around 10%) and Lidl (6%) are still attracting new shoppers while they continue to open new space at a rapid rate. So, while organic sales growth might be slowing, new store openings mean that both of the main discounters are continuing to grow much faster than the rest of the market.

There is a degree of concern that the discounters are moving too far adrift of their heritage business model of no-frills, limited assortment efficiency. A lot of the changes introduced by Aldi and Lidl over the last few years have increased complexity and cost, meaning that sales per employee have eroded and that one of the USPs of discount retailing (the limited range) has been somewhat diluted.

That said, discounters have succeeded to such an extent that they enjoy the highest advocacy levels (net promoter scores) among any UK food retailers – evidence that their success is built on more than just transactional loyalty and that they have assembled a growing sense of affection from their aficionados.

What can the supermarkets do to fight back?

Tesco recently announced that it would be stepping up its fight against Aldi and Lidl by benchmarking its own private label range against the quality and price of at least 60% of Aldi and Lidl products. While this price-led focus might bolster Tesco’s ongoing recovery, competing against the discounters on price is something of a ‘mission impossible’, with traditional supermarkets unable to match the low prices resulting from the discounters’ business model and efficiencies.

Instead, supermarkets might be better advised to play up their attributes that the discounters are unable to replicate, such as a broader assortment featuring more A-brands, service counters, e-commerce, strong customer service, loyalty schemes and extensive ranges in general merchandise categories such as clothing.

Loyalty cards & other touchpoints

Do loyalty cards work?

With the average UK shopper holding 3.3 loyalty cards and using just 2.5, it is fair to suggest that loyalty cards are something of a misnomer. The fact that Aldi and Lidl continue to win new shoppers despite not offering a loyalty card is an indicator that loyalty schemes have seen their power diminished. A number of retailers have watered down the benefits available through their loyalty card programmes, reining back the discounts and points that shoppers can generate by using their cards when grocery shopping.

A significant 61% of UK grocery shoppers are now of the opinion that “I want to feel rewarded for my loyalty by more than just another loyalty card”. We asked shoppers what, if any action they might take if their supermarket loyalty programmes were withdrawn. 6% of UK shoppers said that they would stop shopping with a retailer if their loyalty card was halted; while 44% stated that they would either visit that particular retailer less frequently or decrease their spending there. On the other hand, 50% of shoppers say that the cessation of a loyalty card would not impact their shopping behaviour at all. Clearly, this is hypothetical claimed behaviour, but we believe that it reflects a general level of disenchantment with card-based loyalty schemes.

How could they be improved?

In terms of specific loyalty card mechanics, the most popular aspects of loyalty schemes are described by shoppers as points that are redeemable against future shopping trips, exclusive promotions, member benefits like free coffee, and fuel discounts. UK shoppers are much less enamoured of loyalty cards compared to their counterparts in the USA, but it is worth remembering that many US retailers make loyalty card usage a precondition for receiving special offers and a large number of US supermarkets also tie their loyalty cards to gasoline discount programmes.

Little impact on store choice from retailer communications

Loyalty cards and loyalty reward schemes are just a fragment of the communications touchpoints that retailers have at their disposal. Alongside promotions and offers (which influence the choice of store for 18% of shoppers), loyalty reward schemes are a driver of store choice for 11% of shoppers). We have already noted that most store choices are a result of either habit or proximity, so it is little surprise to see that fewer than 10% of shoppers have their choice of store impacted by other touchpoints such as leaflets, TV ads, word of mouth, print ads and vouchers/coupons.

Transactional vs. emotional loyalty

Mapping the UK retailers

Arriving at a definition of loyalty is a notoriously problematic. Some retailers would opine that loyalty can be defined as a shopper spending most of their budget with that retailer. Others point to frequency. Others still would look towards a net promoter scores.

However one chooses to define, or measure, loyalty, one can justifiably question whether or not it actually exists in the grocery retail industry. Statistics from the likes of Kantar Worldpanel suggest that shoppers, confronted with an enormity of choice, are happy to exercise that freedom of choice, visiting up to five or six different grocery retail banners on a monthly basis.

What is loyalty in this context? Is it capturing two of those five trips? Three?

We asked shoppers what drove them to be loyal to certain retailers, categorising the responses into five different buckets: the retailer is an enjoyable place to shop; the retailer cares about me as a shopper, the retailer offers good value for money; the retailer is convenient to shop; and I default to this retailer out of inertia.

Enjoyable place to shop: Waitrose and M&S were a long way out in front on this aspect of loyalty. Waitrose – thanks in part to its Partnership structure in which store workers are part owners of the chain – is famed for its customer service and loyalty benefits such as free coffee. Its stores are also being upgraded to include excellent food-for-now and ‘grazing’ areas, meaning that the retailer is way out in front as an enjoyable grocery destination. M&S, with its strong credentials in convenience foods and a food business that is consistently outgunning the clothing side of the operation, is the second-placed retailer in terms of being an enjoyable place to shop.

The Big Four supermarkets and the discounters are bunched together in this aspect of loyalty, with the least preferred retailer being the Co-op. We would expect this status to improve over time thanks to the retailer’s ongoing store upgrade programme, its enhanced membership and community proposition and the very real improvements to ranging and pricing, although – as things stand – the Co-op would appear to be a store selected for proximity over affection.

The retailer cares about me as a shopper: M&S and Waitrose also lead the way in terms of shopper perceptions about how much the retailers care for their shoppers. It is noteworthy that Sainsbury’s outperforms its other Big Four competitors in this regard, while Lidl brings up the rear of this particular metric.

Good value for money: Few surprises here, with the discounters Aldi and Lid way out in front in terms of value perceptions. Asda fares best of the Big Four in terms of shoppers’ perceptions of value for money, but the fact that it lags the discounters by quite such a margin might go some way to explaining its current weak trading. The Co-op, Waitrose and M&S are the retailers with the works perceptions concerning value for money, an unsurprising outcome given that M&S and Waitrose are firmly positioned at the premium end of the market and the Co-op is a convenience specialist targeting time-poor consumers.

Convenient place to shop: With around 2,800 locations and in excess of five million members, the Co-op’s extensive network of stores in neighbourhood and urban locations means that it scores very strongly in terms of convenience. Tesco, which also has a huge number of stores including the Tesco Express and One Stop convenience fascias also performs well on the convenience metric. Bringing up the rear in terms of convenience are M&S, Waitrose, Aldi and Lidl, reflecting the fact that there are still hundreds of communities that are underserved by these particular retailers – an observation that is underpinned by the strong physical expansion plans of the discounters and M&S Simply Food in particular.

I default to this retailer out of inertia: Many shoppers go about their grocery shopping with a sense of habit and familiarly and can best e described as exhibiting autopilot behaviour. There is a significant overlap between inertia and proximity (it is hard to get a shopper to travel past one store to get to another), so the Co-op is the prime retailer for attracting shoppers primarily driven by habit and familiarity.

Moving from inertia to advocacy

The responses to our shopper research revealed that there are four basic types of loyalty: Inertia; passive; financial; and advocacy.

Inertia loyalty: low engagement where shoppers are trapped by geography, or where the efforts required to use another brand are too significant

Financial loyalty: rewards-based loyalty whereby shoppers are financially compensated for transactions or where a retailer’s low prices are too compelling to go elsewhere

Passive loyalty: an inactive relationship that is enhanced with personalised communication and better-targeted rewards. Insular attitude towards what the brand can do for the shopper and what the shopper can do for the brand

True advocacy: strong connection to the brand and sense of identity with its attributes. Shoppers publicly advocate the brand & connect with other enthusiasts

We believe that there is scope for UK retailers to elevate their relationship with their shoppers; to transform the loyalty that shoppers demonstrate from a functional inertia or conveniencedriven habit into more of an emotional bond that can create legions of advocates that will recommend a retailer’s stores through word-of-mouth or myriad social networks.

The discounters have arguably completed this transformation: evolving from intensely transactional loyalty predicated on low prices and not a great deal else to a situation where the retailers have recruited thousands of genuine advocates that are anxious to share the discovery that shopping at the discounters is for smart people, not just poor people. While a fair degree of this transformation has been due to the instore improvements from Aldi and Lidl that we discussed earlier, the shift in relationship has also been reinforced, we believe, by the retailers’ quirky marketing and social media strategies.

Other retailers could learn a trick or two from their discount competitors, but many of the more mainstream competitors are making decent progress on their own journey from transactional to emotional loyalty. For instance, Tesco’s rejuvenation of its ‘Every Little Helps’ ethos and the introduction of initiatives such as free fruit for kids have seen the company’s own measures of loyalty and customer satisfaction improve consistently over the last 18 months.

In an era where shoppers have never had more choice, and are increasingly willing and able to exercise this choice, it has never been more vital that retailers go above and beyond to deliver genuine moments of interaction – be that a ‘welcome’ or a ‘thank you’ – that help foster an emotional bond between themselves and their shoppers. It is always worth remembering that the bulk of human decision-making is powered by emotional rather than rational thought processes and those retailers that learn to address the hearts of their shoppers, as well as their minds, will be the businesses set to thrive in an increasingly cut-throat market.

Bryan Roberts, Global Insights Director

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United Kingdom results have been drawn from a survey of 1,540 shoppers living in the UK. The survey was conducted on behalf of TCC Global, and took place in H2 2016.

Global results have been drawn from a survey of 6,565 shoppers living in the UK, Italy, France, Russia, Mexico and the United States. The survey was conducted on behalf of TCC Global, and took place in H2 2016.